secunet Security Networks Aktiengesellschaft (YSN.DE) Earnings Call Transcript & Summary

Good day, and welcome to today's earnings call of secunet Security Networks AG on the occasion of the Q3 figures of 2025. I would like to welcome CEO, Marc-Julian Siewert; and CFO, Jessica Nospers, who will take you through the figures in a moment. [Operator Instructions] And having said this, I would like to give the floor to you, Mr. Siewert.

Thank you so much, and it's with great pleasure to welcome you all. Good afternoon. Welcome to the earnings call for the quarter ending September 30, 2025. And after giving a brief feeling of the strategic positioning of secunet, we are going to go through the financials, look at the outlook and then obviously happy to answer all your questions. So secunet is super well and strongly positioned in the face of government technology, right at the center between hardware security, software and cybersecurity in the cloud. So we are really addressing pressing issues of our time, and that's what I see every day discussing with diplomats and politicians. So there are 4 major facts that are driving our business and positioning. There's, on the one hand, the geopolitical situation that we all live through every day. The start of the Russia-Ukraine war has substantially changed the perspective of global geopolitics, of Europeans positioning as well as the U.S. and EU relations, obviously. Cybersecurity has been there, and cyber attacks have been there for many years, yet they become ever more visible, and they become more visible with physical attacks as well. So people get really aware of the challenges of our time, at least when drones are flying through airspaces. However, we have been dealing for this. secunet has been dealing with this for many years in the field of cyber, providing really secure infrastructures and communication in the network, yet also in the clients for especially government and sophisticated use cases. The fact of the importance of sovereignty has ever more increased, especially for Europe. We really see the need for sovereignty and sovereignty in that sense does not mean to close ourselves off, but to make it secure and have secure stacks and sovereign solutions, especially for the most important secrets that we need to deal with. Especially the developments in our cloud are moving forward in really providing approved sovereign cloud solutions, also providing the future for our core portfolio. On the defense side, we can obviously see substantial developments with a NATO target of 5% of GDP, with the special funds on infrastructure and defense in Germany. So in that sense, secunet is super well positioned to play its role and to really fulfill its purpose as we go forward ensuring the digital sovereignty of Europe. In that sense, and looking back at my first 100 days, if you allow a personal view, we are really working relentlessly on working with our customers, on really improving our customer journey. We are developing our strategy that is largely developing from our core in Germany that remains crucially important into Europe and also EU institutions and obviously, NATO. The technology stack of secunet is a fantastic basis for everything that we want to do in the next 5 and 10 years. And obviously, what impressed me most is the depth and the knowledge of the teams throughout the company. So in that sense, we wake up every single day to secure Europe, to secure Germany, and we are going to move further into European markets, positioning ourselves as the guardians of Europe's digital freedom. Following, let's say, the larger geopolitical picture, we are delighted to also look deeper into the numbers that were published yesterday. And with this, I'm happy to hand over to my colleague, Jessica Nospers.

Thank you very much, Julian. Also very warm welcome from me. You can see the highlights of the 9 months of 2025. secunet is showing a sustainable growth trajectory. We have a significant improvement in earnings, high order intake and we face a consistently high demand for our portfolio. Revenue increased by roughly 12%, EBIT by roughly 41.3% and order intake also by roughly 7%. Going to the next slide, let me now take you through the main financial figures by starting with group revenue. You can see on this slide, as I said before, that revenue was increasing by 12% in the first 9 months. There is still an effect from a very strong Q1 in the figures. So you can see that the quarterly figures for Q3 is increasing by 2%. We had a normalization in Q2, but we also see the positive trend to continue in Q3. There is a special effect that held back a better development. I wanted to point out to you there was a very late decision on the German federal budget. It was approved by the 18th of September. Also, in addition, after this approval, large projects of above EUR 20 million need additional parliament approval. We saw volumes picking up since the late German Bundestag decision on the budget and we are very content to see how things are developing. From the public sector, we can see that there's a particularly increase of 9% in the first 9 months, but a slight decline in only Q3 as a stand-alone. Looking into the specific order intake, still we saw a strong increase after budgets were approved. I will come to that in a minute. Also, the divisions, defense showed a very favorable increase, public authorities also and homeland securities also developing in line with expectations. Our business sector was able to massively increase its top line. You can see that on this slide. It's an overall smaller numbers than compared to the public sector, but there is definitely an increasing demand also from non-public customers, both from the industry division as well as from the eHealth division. Coming to the next slide, we see the revenue by region. Domestic revenue is increasing. International revenue is increasing. Growth drivers are intact, and domestic revenue can stand a little bit of short-term headwinds from the legislation. International revenue, on the other hand, went up by 6% which is also a very positive result. As Marc-Julian pointed out in his opening statement, there is a clear commitment to increase that portion in the quarters to come, and we will keep you updated on future developments. Profitability in absolute terms grew by more than 40% as a result of a higher top line, a higher gross margin and a favorable product mix. Also ongoing cost discipline played a role in this. You can see also the positive effect from the first quarter of this year, the third quarter, but also shows 9% increase which is a positive trend. The overall EBIT margin rose from 8.7% to – from, sorry, 6.9% in the last year to 8.7% in this year. And also, you can see in this development, margin is still under the -- or below the expectations for year-end. So you can see that there is also a very big impact of the fourth quarter into -- onto our numbers. Next slide. You can see the cash flow development. Cash flow started as usual with quite a high balance on balance -- cash on balance. Then we had a little inflow from operating activities. Cash flow from operating activities was a bit lower compared to last year reflecting quite an increase in inventory that we built up during the year on purpose to foster year-end growth due to the fact that the Parliament and the Bundestag they had quite a late approval on the budget. We needed to make sure that we are able to deliver so we built up our inventory a little bit beforehand and that is reflected in operating activities cash flow. Cash flow from financing activities is at the same level than usual reflecting the dividend that we pay out in the first half year. Next slide. We can see order intake and I think it's quite impressive to see order intake, first of all, in the first 9 months and also in the third quarter particularly, we were still able to manage an order increase despite the non-approved budget which makes us a little bit proud. So we are quite content with the development of order intake under the current situation. Yes. So with order backlog also showing an increase and particularly starting with order backlog that developed favorably already by the end of December, and we kind of took, let's say, EUR 30 million for the first quarter out of this order backlog to turn it into revenue. And still, we could not only fill this, let's say, gap that the first quarter caused, but also increase order backlog quite considerably given the current circumstances. And this is it. There is the outlook. Before I comment on the outlook, we can see a typical seasonal pattern here. You see also in the past year, every quarter shows an increased level of revenue. Q3 and Q4 are, as usual, the strongest quarters, both with regard to revenue and also to EBIT. And from last year's figures, you can see that almost 100% of EBIT was generated in the second half of the year. We had only a very small positive result in year-to-date June. And this year was a little bit different because we started so favorably into the year already being positive after the first quarter and then contributing further EBIT as the quarters went by. You can see we had strong first 2 and third quarters, but still the fourth quarter is also expected in this year to provide the biggest amount of sales and also the highest EBIT contribution. This leads me to the outlook for the full year. Since revenue and earnings came in on a good level after 9 months, we confirmed our guidance yesterday and specified margin ranges in terms of EBITDA and EBIT. While we left our revenue expectations unchanged, we are now expecting to hit both margin ranges in the mid to upper end of the corridor. And this is what I would love to give you on the way. And now open up the Q&A session. Thank you for being here.

[Operator Instructions] Mr. Kalliwoda.

Can you hear me?

Yes.

I have 2 questions. This household government budget, maybe you can specify a little bit, can we -- or maybe you can mention a certain kind of volume or next decisions? Or can we account on a certain volume or order intake? And my second question is your -- wait a bit. Yes. My second question is your foreign revenues were slightly down. Maybe you can shed some light on that. What have been the reasons? And what do you expect for the coming year in regards of foreign revenues and earnings?

So when it comes to order intake, we can see a favorable development in line with what we expected. It is also the case that we did not only wait for order intake to happen, but we already discussed with all our customers to see what their demand will be and how far we can support them in their customer journey and what kind of projects they plan to realize when it comes to the current, but also the next year. So we were prepared for most of the orders because projects were already known to us and we already worked on inventory as a few inventory items, particularly the secret products, take a little bit of time to be produced. And so we had a preproduction of them very much in line with what we expected would be the, let's say, top sellers. And actually, that paid out. So this is a little bit of an unusual development for us to get our working capital balances up before we receive the orders, but we have made good experiences with that during COVID. So we were prepared for a positive order development. The international sales, they took off with a 6% growth compared to prior year period. So it would be nice if you could maybe specify your questions with international sales.

Yes. Percentagewise, I guess it's percentagewise, which is mainly due to the fact that the national revenue has substantially increased.

Yes, the share of the revenue. That's true. So the growth rate of domestic revenue was higher than growth rate of international. So there was a little bit of a higher share in domestic revenues in total, yes.

[Operator Instructions] We move to the Q&A chat. Can you give an indication on how high the revenues are next year in terms of EUR 1 million? It's a question by [ Nils Herzing ].

Thank you for your question, [ Mr. Herzing ]. We currently are still working on the budget for next year. We have a very favorable geopolitical outlook as Julian just said before, but we usually never commenting on the revenue level for next year before the year has started. I cannot hear you anymore.

Mr. Kalliwoda is raising his hand again and so I get back to him. Mr. Kalliwoda.

Yes. Can you hear me? Yes, it is possible to read so much about Zero Trust architectures and where there are new technology also in the cloud. And I think you have also a technology which is similar or is it that you based on R&D are developing your software on and on to become more perfect. So what do you think about this Zero Trust architecture? This would be one question. And the second is, I think you are so successful with this family biometric border control. Has there the order intake be [ stable ] or has grown a bit on this technology?

I would try to give an answer especially on the technology stack. So indeed everything in the public cloud is now based on Zero Trust. We have developed our own very secure cloud stack and specific layers that, I would say, you can't give it a name, but it's going beyond Zero Trust. It is really the reflection of what we consider the certified levels on the hardware stack that we transform into the cloud. So Zero Trust is the basis which today it's basically describing everything that's going into the internet can be compromised and we are working against that. So you have to identify every single device that speaks to each other in a Zero Trust logic, while we are going quite some steps beyond with our technology stack in cloud infrastructures and really aiming to really fulfill all the specifications that are needed today in the SINA ecosystem. So matching the same in the cloud. And this goes to the levels of really secure cloud computing for German powers NFD, but also all the way to NATO secret levels. I hope that answers the question. It's basically putting Zero Trust in the perspective of our technology stack. Second question, I think it's a great question. Thank you for raising it because we have substantial great news on the European entry exit system that you might have seen throughout the various news outlets. You can see the devices in the airports and the border control throughout Europe is changing to become much more advanced and digital. It's a project a couple of years old and I would really say that in this field we have developed to be not only a substantial player, but probably one of the leading ones.

We received another question in the chat box. I will read this out. Could you specify what portion of your revenue is recurring? And will you provide such figures in the future as the cloud transformation progresses? Additionally, could you update us on the progress you have made recently in your cloud transformation efforts?